The election of Donald Trump has put a hot spotlight on the role of international trade in the US economy. Much of Trump’s support is due to a negative attitude toward trade that has been brewing for many years—most notably in the Rust Belt states most threatened by global competition.
The fact is that trade is good for the United States economically and geopolitically. A strong case for trade and against protectionism is made by University of Chicago economist John H. Cochrane in his essay “5 Logical Arguments Against the Protectionist Fallacy.” Cochrane’s essay is a springboard for the comments that follow.
MONEY FLOWS—FOLLOWING THE MONEY
Cochrane points out that money earned from exports to the US eventually comes back. The money comes back in the form of export revenues or foreign investment in the US. Presumably if those goods were sold domestically then US businesses would make similar investments. How would these investments from abroad differ from those made by domestic investors out of their savings? Sales by domestic companies substituting for imports would either cost more to customers leaving them with less money to spend in the economy or less profitable for the sellers leaving them with less money to invest. Thus, free trade actually brings more money into the US economy. With the exception of strategically sensitive items, trade should be encouraged.
At the same time we must recognize that while trade is good for the economy as a whole, there are large segments of the population who suffer job loss or reduced wages due to trade. A long time may pass and a lot of damage can be done as economies adjust.
Recommended Policy Response: Reduction of import barriers (and compelling our trading partners to reciprocate!) Tariffs and other import barriers are passed through to consumers in the form of higher prices;
- Favor those countries who tend to buy US exports. While it is true that money spent on imports ultimately returns, some of it comes back much more quickly and directly from countries that tend to buy US goods. This is true of many countries due to historical or cultural closeness. Canada and Mexico, our North American neighbors are the most obvious examples. These countries are now closely integrated with the US. Imports from Mexico are better than imports from China and we should recognize that a strong, prosperous Mexico is in America’s interest.
- Make it easy for countries to buy US exports. Encourage American commercial presence abroad. In fast growing developing countries especially, US investments will promote exports in several ways: buy creating jobs, which creates more customers; by creating a market for US exports to supply overseas manufacturing and distribution; helping overseas trading partners become accustomed to US business culture, parts and measurement standards.
WHY SHOULD MOVEMENT OF GOODS, MONEY OR PEOPLE BE CONSTRAINED SIMPLY FOR CROSSING AN INTERNATIONAL BORDER?
Cochrane correctly makes the point that if nations are justified in blocking imports from other nations, then states should take steps to block “imports” from other states. Should the northeast and midwest erect protections from cheap southern labor? By that logic Clevelanders should buy Hondas made in Ohio instead of Fords from Michigan or a Subaru from Indiana!
We should of course recognize that states and municipalities do compete for jobs and investment of various kinds whether it’s for factories or corporate headquarters or sports teams. And let’s not forget the recent doughnut war when North Carolina upstart Krispy Kreme dared challenge Dunkin Donuts on its home turf in Massachusetts! But however fierce the competition states would not consider a tariff on goods from other parts of the US. Why not? Why are domestic tariffs so obviously ridiculous while international tariffs are more acceptable? Could it be that we recognize that our states are integrated into a larger economic entity with a common set of laws and cultural norms. Under these conditions buyers and sellers have easy access to counterparts in another state. As a result interstate commerce occurs smoothly and inexpensively.
The global economy is also integrated and is becoming more so with improvements in transportation, communication and information technology. We see this integration on a regional basis which is why countries in North American, Western Europe and East Africa have with varying degrees of success formed regional trade blocs.
Recommended Policy Response:
- Recognize that we are part of an increasingly integrated and interdependent world economy and remove arbitrary barriers to the movement of goods information, and people. In addition, our trade and immigration policies should be coordinated with those of Mexico and Canada.
- Work more closely with Mexico to strengthen the Mexican economy. A stronger Mexican economy will lessen the incentive to illegally cross the border and will increase the customer base for US exports. Approach Mexico as a friend not as a threat.
ARE THE NUMBER OF JOBS FIXED? NO. THE NUMBER OF JOBS MUST INCREASE AS POPULATION INCREASES.
Most protectionist rhetoric is based on the premise that there are a fixed number of jobs that are “our” jobs, and that immigrants and foreign competitors are “stealing our jobs.”
The solutions to our immigration problems are long and complex but they generally do not start with blaming them for a tight labor market.
Many studies have shown that immigrants threaten jobs mostly at the lower skill levels. Several economists conclude that immigrant labor does not take jobs but it does slightly reduce wages. I myself have heard anecdotal evidence of this from friends in information technology who feel their wages are depressed by large numbers of immigrant professionals in the US on H1-B visas.
Recommended Policy Response: Reduce barriers to legal immigration. Enforce US labor law. Provide targeted assistance to those whose jobs are directly impacted by foreign competition.
JOB GAINS AND LOSSES DUE TO TRADE ARE ALWAYS NET GAINS AND LOSSES
There are winners and losers as a result of global trade. How do we minimize the losses and their impact while maximizing the gains?
Recommended Policy Response: Trade adjustment assistance; includes training, child care, mobility assistance, portable health care. Trade adjustment assistance for communities!
The bottom lines is the following:
- We are better off with a more open society—one that creates customers, partners and political allies.
- We should advocate for policies that enable ALL of our population to take advantages of openness and minimize the losses among those who are vulnerable.
The broken American immigration system and the inability or unwillingness of policymakers of any party to fix it is a drag on the nation’s economy and a source of unnecessary anxiety and social tension. Some groups—Latinos especially get stigmatized as illegal immigrants even when their families have been in the country for generations. Native born citizens are nervous about unfamiliar cultures and languages in their communities. Many think their jobs are being taken by immigrants. It’s an issue more complex than many of us realize. Our emphasis here is on [usually] low skilled immigrants who come to the US seeking economic opportunity. Here’s how the Folks on the Hill see the issue:
1. If we bother to have immigration laws we should enforce them and do what we can to prevent people from violating them. Border security is important but has its limits. Some people will always get through. The border is too big. Only small, rich countries (Denmark, Switzerland) can claim true border security. Given the difficulty of stopping illegal border crossings, a smarter strategy would be to focus on the jobs they are most often attracted to and on those who overstay their visas. The laws should be enforced. If we don’t like the laws, let’s change them!
2. Recognize that while illegal immigration is a crime the people who do it are not bad people. They are simply responding to the incentives presented to them. American immigration officials should focus on those who hire illegals, not the powerless poor people trying to survive.
3. Understand that the economies of the US, Mexico and Central America are highly integrated. Therefore strengthening those economies is in the US national interest. From a selfish American perspective, a job in Mexico is better than a job in China!
4. Change the message. Use the power of our massive public and private media apparatus to drive the message home that we welcome LEGAL immigration. Crossing the border illegally is risking your life. Show some corpses in the desert. Show the evil of the coyotes who make their living exploiting poor families.
5. For the message to mean anything we have to improve the process for folks getting legal work visas. Easier said than done but clearly necessary.
Most of the better political solutions are variations of the Path to Citizenship–illegal immigrants can obtain green cards in exchange for a fine. The idea was first proposed by Ted Kennedy and George W. Bush. The dream act also makes sense for those kids brought to the US at an early age who would be foreigners anywhere else. That’s at least a sensible basis for an immigration policy. We can then debate the details.
Selma‘s resonance with current events — its inherent commentary on the ingrained hatefulness of American racism, on our country’s tradition of protests for civil rights, and on aggression by law enforcement towards black Americans — will clearly be a hot topic of discussion for weeks to come. I watched the stunningSelma as a sometime-activist and a longtime reporter on activist movements. And one of the qualities that particularly made this depiction of a sliver of Civil Rights Movement history feel so real and urgent to me was its lens on the organizing process: its debates, its pitfalls, the internal questioning, the way the leaders were jockeying with the press and trying to reach sympathetic ears in places of power.
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A group of black students at Harvard are making a powerful statement about the institutional racism they say they have experienced through an eye-opening photography project.
“Our voices often go unheard on this campus, our experiences are devalued, our presence is questioned,” their website, itooamharvard.tumblr.com, says.
“This project is our way of speaking back, of claiming this campus, of standing up to say: We are here.”
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The very character traits and policy positions that make Chuck Hagel controversial also make him the right choice for Secretary of Defense:
- Recognition of the folly of the Iraq war.
- Willingness to criticize Israel when warranted.
- Emphasis on dialogue over bravado.
- Realization that force is the last option, not the first. His inclination to open up dialogue with enemies like Hezbollah are not capitulation. They are instead a realization that a new approach is required if the continuous cycle of tit for tat violence in that region is to stop.
Being a Vietnam veteran who has experienced the horror of war up close only adds to his credibility.
For those of us looking for significant change in the US foreign policy stance rather than the outdated establishment view that has kept us backing corrupt rulers and getting mired in useless conflicts like Iraq, this is a small step in the right direction.
Furthermore, Hagel is the right person to lead the necessary transition to a fiscally smaller defense department.
Adding Hagel and Kerry simultaneously strengthens the foreign policy and national security teams. Both have the credibility of veterans who know enough about war to know that it should be avoided. Plus if people think Hagel is too radical Kerry will be able to smooth the ruffled feathers.
Now I want to see the president fight for this nominee. With no reelection pressure this is the time to call in the favors and invest the political capital necessary to move foreign policy into the 21st century.